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The Journal of Alternative Investments

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The Cash-secured PutWrite Strategy and Performance of Related Benchmark Indexes

Jason Ungar and Matthew T Moran
The Journal of Alternative Investments Spring 2009, 11 (4) 43-56; DOI: https://doi.org/10.3905/JAI.2009.11.4.043
Jason Ungar
is a director of Ansbacher Investment Management, Inc., in New York, NY.
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Matthew T Moran
is a vice president at Chicago Board Options Exchange, Inc., in Chicago, IL.
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  • For correspondence: moran@cboe.com
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Abstract

The put-write strategy of selling cash-secured S&P 500 Index put options has the potential to appeal to investors who wish to add income and attempt to boost risk-adjusted returns, in return for risking under-performance during bull markets. An investor who engages in a cash-secured (or collateralized) put sale strategy sells (or “writes”) a put option contract and at the same time deposits the full cash amount necessary for a possible purchase of underlying shares in his brokerage account. The first major benchmark index for the cash-secured put strategy is the CBOE S&P 500 PutWrite Index (PUT), which was introduced in 2007 and has daily historical data back to June 30, 1986. This article analyzes the performance and volatility of the CBOE S&P 500 PutWrite Index. Over the period studied, the PUT Index outperformed the S&P 500 Index with significantly lower volatility. A key factor in the superior performance of the PUT Index was the fact that the S&P 500 options were richly priced—the implied volatility for the S&P 500 options usually was higher than the subsequent realized volatility of the S&P 500 Index.

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The Journal of Alternative Investments
Vol. 11, Issue 4
Spring 2009
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The Cash-secured PutWrite Strategy and Performance of Related Benchmark Indexes
Jason Ungar, Matthew T Moran
The Journal of Alternative Investments Mar 2009, 11 (4) 43-56; DOI: 10.3905/JAI.2009.11.4.043

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The Cash-secured PutWrite Strategy and Performance of Related Benchmark Indexes
Jason Ungar, Matthew T Moran
The Journal of Alternative Investments Mar 2009, 11 (4) 43-56; DOI: 10.3905/JAI.2009.11.4.043
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  • Article
    • Abstract
    • BACKGROUND ON LISTED OPTIONS
    • SALE OF CASH-SECURED PUT OPTIONS
    • BENCHMARK INDEXES FOR OPTIONS-BASED STRATEGIES
    • THE CBOE S&P 500 PUTWRITE INDEX (PUT)
    • PERFORMANCE OF CBOE S&P 500 PUTWRITE INDEX (PUT) AND OTHER INDEXES OVER MORE THAN 22 YEARS
    • IMPACT OF ADDING PUT TO A “TRADITIONAL” PORTFOLIO
    • SOURCES OF RETURN AND OUTPERFORMANCE
    • CASE STUDY—COMPARING PUT INDEX RETURNS TO RETURNS OF A PUT PORTFOLIO MANAGER
    • CONCLUSION
    • ENDNOTES
    • REFERENCES
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  • PDF (Subscribers Only)

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